In less than a week, Steve Cohen would have been virtually untouchable. America's Securities and Exchange Commission (SEC) had spent nearly five years investigating alleged insider trading at his hedge fund, SAC Capital Advisors, but it could not pull together sufficient evidence to pin criminal charges against him personally.

It still hasn't managed to. But – just days away from a deadline that would have barred the SEC from pressing any sort of charges relating to the investigation – the regulator is taking another route to try to put Cohen out of business. On Thursday, it brought a raft of criminal charges against SAC, including wire fraud and four counts of securities fraud between 2009 and at least 2010. It was an unusually aggressive move that has landed a potentially lethal hammer blow to what was, for a long time, one of Wall Street's most successful hedge funds.

The regulator has accused SAC of engaging in unpredecented levels of insider trading and creating an environment that was a "magnet for cheaters" by paying traders handsomely to use "high conviction" tip-offs to help it gain an "edge" over rivals.

Whatever the methods, the hedge fund has certainly been successful. Take the situation 10 years ago; SAC was a highly secretive cluster of funds, which routinely accounted for 3pc of all the daily trades on the New York Stock Exchange and 1pc of the Nasdaq's. But its reputation as one of the Street's most important players was not earned from the volume of trades it made. It got that from its sheer prowess.

According to interviews at the time, Cohen's firm ran according to the credo "get the information faster than anyone else". SAC's traders expected to get the first calls from analysts who were downgrading or upgrading a given stock. They would bawl out those who did not oblige.

On the flip side, those who fed information through would be rewarded with gratitude. "I call Stevie personally when I have any insight or news titbit on a company. I know he'll put the info to use and actually trade off it," one analyst said during SAC's heyday.

It is this approach that helped Cohen earn about $1bn (£650m) a year, making him one of the richest men in America.

Unsurprisingly, SAC employees felt their own stock within the company rise and fall according to the information they could get their hands on. It was a brutal environment, where staff were paid according to the money they made on individual trades, rather than the overall performance of the fund, as is the case at most hedge funds. In hindsight, it seems inevitable that staff would take things to extremes. And by their own admissions, they did.

In what is one of the biggest insider trading cases in history, five SAC employees have pleaded guilty to insider trading. The most recent was last Thursday, identified as Richard Lee. Lee admitted to generating more than $1.5m in profits illegally, using tip-offs from sources in the technology sector. In one instance, a Microsoft executive told him the company was forming a search partnership with Yahoo! shortly before the deal was announced. He also used information from a source close to 3Com Corp, to capitalise on the company's $2.7bn sale to Hewlett-Packard.

Cohen's company is battling to convince regulators that Lee is one of a few rogue traders, rather than typical of the company's culture. "The handful of men who admit they broke the law does not reflect the honesty, integrity and character of the thousands of men and women who have worked at SAC over the past 21 years," an SAC spokesman said in a statement.

It will have a job on its hands convincing people. George Canellos, co-director of the SEC's enforcement division, described Lee last week as "yet another by-product of a pervasive, win-at-all cost culture".

"When so many people from a single hedge fund have engaged in insider trading, it is not a coincidence," added Preet Bharara, the top federal prosecutor in Manhattan. "It is instead the predictable product of pervasive institutional failure."

The SEC may not have the evidence to bring criminal charges against Cohen for insider trading, but it wants to punish him for the culture he created, and is trying to do so by pursuing him for crimes of omission. The billionaire hedge fund manager failed to supervise wayward fund managers and ignored "red flags", the SEC claims. It will not help Cohen's position that SAC's legal and compliance staff warned him that Lee was part of an "insider trading ring" before the fund employed him. Cohen allegedly ignored their advice. He has denied any wrongdoing.

SAC has entered a not-guilty plea.

The SEC is seeking to ban Cohen from managing money for other people, ending a career that has its roots in his childhood, when he kept track of the share prices of different companies printed in his father's newspaper.

"They are using an Al Capone-style tactic," John Coffee, a professor at Columbia Law School, told Bloomberg, referring to the Chicago gangster who in 1931 was charged with tax evasion.

"The SEC is aiming at his kneecaps, not his jugular," he said. "This is a little like catching John Dillinger entering a bank with a submachine gun and charging him with double parking."

But even "parking fines" and "kneecapping" mark a dramatic change in the SEC's approach. The regulator has come under considerable criticism over the past decade for being too gentle in how it investigates insider dealing cases. It has been lambasted for its failure to uncover the Ponzi scheme set up by Bernie Madoff.

Its critics have not just focused on its detective work. The SEC has also been attacked for a softly-softly approach to those people or companies it does catch out.

Usually, the regulator goes for middle-tier executives, rather than the man or woman at the top. It also tends to settle cases out of court, historically allowing banks to buy silence without admitting fault. There is a pragmatic argument for this. The SEC is publicly funded, and going up against major banks – with deep pockets and valuable reputations to protect – is likely to prove a costly exercise. Even if the SEC wins, it may cost the regulator far more money to secure that victory than it can justify.

And if it loses, the costs could be substantial. It's a tough sell at a time when Americans are feeling the painful squeeze of cuts in public spending.

It is not all about money, however. The SEC, like most organisations, is full of people planning their next career moves and jostling for position. They want to be able to point to successful convictions, something they are far more likely to achieve if they go after individual wrongdoers, whose errors are more black and white, than if they pursue major organisations whose alleged "crimes" are to do with the structure of the industry.

Things are starting to shift, however. The SEC's new chairman, Mary Jo White, has declared war on "cop-out settlements", saying that defendants in many cases will no longer be allowed to walk away without either admitting or denying wrongdoing. It actively combs through press reports to see which trophy scalps it can claim. And once it finds them, it is pursuing more alleged wrongdoers all the way to trial.

Earlier this month, the SEC fined former Goldman Sachs board member, Rajat Gupta, $13.9m for illegally tipping corporate secrets to Raj Rajaratnam, a former hedge fund manager it had already convicted and hit with a record $92.8m penalty.

Meanwhile, as the SEC was holding a press conference about its last-minute indictment of SAC executives on Thursday, another former Goldman Sachs banker was in the dock defending himself against the regulator's allegations.

The SEC claims Fabrice Tourre tricked investors into backing a sub-prime mortgage vehicle called Abacus. The Frenchman, who refers to himself as Fabulous Fab, has denied the charges. But the lawsuit, which is still being tried in Manhattan's southern District Court, has become a focal point for those seeking to apportion blame for the financial crisis.

It is the first case the SEC has brought to trial in "many years," says Bradley Simon, a New York defence lawyer who specialises in white-collar crime. "Historically the SEC has been very tepid in its response to financial wrongdoing, but [it seems] to be responding to criticism that it hasn't been doing enough."

But he is among those who query why the SEC is not going further, and pursuing the heavyweights at the top of the companies. "The question I keep asking myself is what are they [the SEC's enforcers] so afraid of with respect to this guy [Cohen]?" says Simon. "The SEC has no problem charging the underlings, but the moguls are allowed to escape."

That's not quite fair. The regulator may not have Cohen bang to rights. But it is not letting him bolt away, either.